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Medical Device Outsourcing: How to Compete with Strong Market Dynamics

Posted by Magnus Reibenspiess|
May 26, 2016

The medical device market is one of the fastest growing and most dynamic sector in the life sciences industry. Two reasons for this are the high profit margins and the increasing demand for advanced medical devices. Today, healthcare produces a vast amount of data each day. A major difficulty is to process the vast amount of data while making relevant a subset of the information available to the right person at the right time, while protecting privacy rights. In the case of an emergency that requires immediate action, there are sometimes only a few seconds which can determine the difference between life and death. The more existing data from a variety of devices that can be linked together and integrated (vital signs, blood tests, etc.), the more sophisticated decisions the clinical staff can make. So it is no surprise that hardware innovations are largely driven by the requirement of handling increased amounts of data.

Development of embedded computers often not among the core competencies

The analysis of this data requires higher computing power and therefore high-performance embedded computers that keep pace with this development. However, higher computing power does not automatically lead to higher energy consumption. In addition to the enormous growth in performance, embedded computers nowadays are increasingly energy efficient which makes further progress into the development of mobile medical equipment such as the monitoring of vital data in the homecare sector. However, the development of embedded computers is often not among the core competencies of medical device manufacturers. One of the reasons: The development of appropriate solutions requires a lot of engineering support, especially when it comes to the application software and the specialized medical equipment design. Thus, although computer technology makes these new applications possible in the first place, it is still only a basic technology.

A demanding, fast growing sector…

n increasingly rapid innovation cycles, existing processor generations are replaced by faster and more efficient processors. With this, the required amount of engineering power rises constantly. Therefore, the development of such technologies becomes less profitable for many suppliers of medical technologies. The core competence of medical device developers lies rather in the medical-specific “periphery”, which is connected to the embedded computer and the software applications that run on the devices. More and more medical equipment OEMs prefer to source corresponding embedded computer technology as an additional component because of increasing cost pressure in the form of a standard-based platform that can be integrated into an existing medical device concept.

As a result of the tremendous demand, medical device outsourcing is projected to reach $44.7 billion by 2017, according to Global Industry Analysts, Inc. Transparency Market Research states that the global medical devices outsourcing market is growing at a Compound Annual Growth Rate (CAGR) of 11.6% between 2012 and 2018, and is likely to reach US$40.8 billion by 2018.

Take a look at the classic motivations fueling this trend:

1. Faster time to market

OEMs can accelerate their time to market by outsourcing noncore competencies and processes in R&D, Quality Management, Regulatory Affairs, testing and production to reliable partners which increases their return of investment. A further advantage is that manufacturing partners often have local presence in key regions and countries including a manufacturing infrastructure with reliable partner networks which also speed up the time to market and preserves the internal resources of the OEMs.

2. Utilization of external expertise and knowledge

As written above, the development of embedded computers is often not among the OEMs core competencies. In order to gain expert knowledge in fast moving industries like Embedded Computing, internal resources would be blocked with the acquisition of the required information.. Therefore it is always a competitive advantage for OEMs to have an experienced and competent partner at their side.

3. Strong and controlled supply chain

A complex medical device may consist of hundreds of components and materials, each with specific requirements, associated standards and applicable regulations such as RoHS. The selection of components that are released for medical use and supporting the demand over years is critical for efficiency and success. Lifecycle management, continuous support and maintenance of all these components is mandatory but may not be handled by the OEM.

Can you think of even more motivations for medical device outsourcing? Please feel free to leave a comment.

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About Kontron

Kontron is a global leader in embedded computing technology (ECT). As a part of technology group S&T, Kontron offers a combined portfolio of secure hardware, middleware and services for Internet of Things (IoT) and Industry 4.0 applications. With its standard products and tailor-made solutions based on highly reliable state-of-the-art embedded technologies, Kontron provides secure and innovative applications for a variety of industries. As a result, customers benefit from accelerated time-to-market, reduced total cost of ownership, product longevity and the best fully integrated applications overall.

Kontron is a listed company. Its shares are traded in the Prime Standard segment of the Frankfurt Stock Exchange and on other exchanges under the symbol "KBC".